Duke Energy Corp. placed Mike Reed, president and CEO of its Indiana operations, on administrative leave Tuesday afternoon in the wake of a state investigation that involves the company and resulted in the dismissal of the chairman of the Indiana Utility Regulatory Commission.

Earlier in the day, Gov. Mitch Daniels fired IURC chief David Lott Hardy for allegedly allowing an agency official to continue presiding over a Duke Energy case even after talking with the utility about a job opportunity.

The governor in an announcement Tuesday morning said he was immediately replacing Hardy with Jim Atterholt as chairman of the IURC. Atterholt serves on the IURC and is the state’s former insurance commissioner.

The firing of Hardy follows the recent departure to Duke’s Plainfield office of Scott Storms, who had been administrative law judge for the IURC. Storms was presiding over a handful of cases involving Duke, including matters involving cost overruns at Duke’s Edwardsport generating plant.

Duke said Tuesday it was also putting Storms on administrative leave from his position in Duke’s legal-regulatory department. Reed and Storms will be on leave “pending the completion of a full evaluation,” Duke said in an announcement.

Storms and Duke previously sought an advisory opinion from the state ethics commission on whether Storms would be subject to a one-year cooling-off period from employment at Duke. The ethics commission said the cooling-off period didn’t apply to Storms, but rather to IURC commissioners involved in direct decision-making.

Critics, including the Citizens Action Coalition, said Storms, even as an administrative law judge, made critical decisions, such as whether or not to admit key evidence in utility cases.

David Pippen, Daniels' general counsel, said an internal review found that Storms was communicating with Duke about a job even while he was presiding over administrative hearings concerning Duke.

"Additionally, the agency head (Hardy) was aware of the communications and did not remove the lawyer from matters for which the lawyer was now conflicted,” Pippen told agency heads.

He added: “I wrote a letter to the IURC explaining the governor’s interpretation of the spirit and intention of the ethics reform he spearheaded when he came to office.”

Moreover, Daniels has directed that administrative opinions over which Storms presided will be reopened and reviewed “to ensure no undue influence was exerted in the decisions.”

It was not immediately clear which Duke cases those involved. “In short, he [Daniels] will not tolerate even the appearance of impropriety,” Pippen said in a memo to state agency heads.

Daniels also directed that a one-year cooling off period for decision makers is to be considered for those at the administrative law judge level, as well.

Further, the administration said it has referred the matter to the inspector general to determine if any laws were broken or whether misinformation was presented to the Ethics Commission.

The blowup is a potential embarrassment for the Daniels administration because  Reed was Daniels’ former commissioner of the Indiana Department of Transportation until leaving for Duke in June. Reed also was former executive director of the IURC under Daniels from 2006 to 2009.

Hardy, an attorney from Fort Wayne, was appointed to the IURC by Daniels in 2005 and was reappointed last year. His term was to have expired in 2014.

Until the mid-1980s, Hardy was an attorney for Public Service Indiana, the predecessor of North Carolina-based Duke’s operations in Indiana.

When Hardy was appointed to the commission five years ago the consumer group Citizens Action Coalition, which intervenes in utility regulation, warned that naming a former PSI lawyer was like “the chicken guarding the hen house.”

A Daniels administration spokeswoman at the time downplayed the affiliation, saying the commission needed someone who was experienced in utility industry matters.

Hardy could not be reached for comment Tuesday afternoon.

Julia Vaughn, policy director for Common Cause of Indiana, said she applauded the governor for removing Hardy, saying the situation involving Storms and Hardy appeared to be a clear violation of the state’s ethics policy.

Vaughn said she hopes the inspector general’s office can conduct a fair and far reaching investigation of the IURC, although she said it would be a difficult task for another branch of the executive branch of state government.  An independent set of eyes wouldn’t hurt, she added.

“Perhaps the U.S. attorney could launch an investigation, as well. There’s been a serious breach of the public trust,” Vaughn said.